Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

You should read the following discussion and analysis together with "Item 6.
Selected Financial Data" and our financial statements and related notes included
elsewhere in this Annual Report. The following discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those expressed or implied in any
forward-looking statements as a result of various factors, including those set
forth under the caption "Item 1A. Risk Factors."

Overview

We are a biopharmaceutical company focused on discovering and developing
first-in-class drugs that target microRNAs to treat a broad range of diseases.
We were formed in 2007 when Alnylam and Isis contributed significant
intellectual property, know-how and financial and human capital to pursue the
development of drugs targeting microRNAs pursuant to a license and collaboration
agreement. microRNAs are recently discovered, naturally occurring ribonucleic
acid, or RNA, molecules that play a critical role in regulating key biological
pathways. Scientific research has shown that the improper balance, or
dysregulation, of microRNAs is directly linked to many diseases. We believe we
have assembled the leading position in the microRNA field, including expertise
in microRNA biology and oligonucleotide chemistry, a broad intellectual property
estate, key opinion leaders and disciplined drug discovery and development
processes. We refer to these assets as our microRNA product platform. We are
using our microRNA product platform to develop chemically modified,
single-stranded oligonucleotides that we call anti-miRs. We use these anti-miRs
to modulate microRNAs and by doing so return diseased cells to their healthy
state. We are pursuing several microRNA targets and are focusing our proprietary
efforts in oncology and orphan diseases. We believe microRNAs may be
transformative in the field of drug discovery and that anti-miRs may become a
new and major class of drugs with broad therapeutic application much like small
molecules, biologics and monoclonal antibodies. Additionally, we believe that
microRNA biomarkers may be used to select optimal patient segments in clinical
trials and to monitor disease progression or relapse. We believe these microRNA
biomarkers can be applied toward drugs that we develop and drugs developed by
other companies with which we partner or collaborate, including small molecules
and monoclonal antibodies. In January 2014, we expanded our biomarkers efforts
and established microMarkers™, a research and development division focused on
identifying microRNAs as biomarkers of human disease, which is designed to
support our therapeutic pipeline, collaborators and strategic partners.

We are currently optimizing anti-miRs in several distinct programs, both
independently and with our strategic alliance partners, AstraZeneca, GSK and
Sanofi. We also have a collaboration agreement with Biogen Idec to evaluate the
potential use of microRNA signatures as a biomarker for human patients with MS.
Under these strategic alliances, we are eligible to receive up to approximately
$1.5 billion in milestone payments upon successful commercialization of microRNA
therapeutics for the programs contemplated by our agreements. These payments
include up to $128.0 million upon achievement of preclinical and IND milestones,
up to $254.0 million upon achievement of clinical development milestones, up to
$380.0 million upon achievement of regulatory milestones and up to $730.0
million upon achievement of commercialization milestones.

In 2013, we set forth certain corporate goals that seek to advance our microRNA
therapeutic pipeline toward the clinic under our 'Road to the Clinic' strategy.
Specifically, we set the goal of nominating two microRNA candidates for clinical
development in 2013, be positioned to file our first applications with
regulatory authorities by the first half of 2014 and maintain a strong year-end
cash position to support these goals. We successfully achieved all of these
goals under our 'Road to the Clinic' strategy: (i) our first clinical candidate,
RG-101, for which we have full ownership and commercial rights, is a
GalNAc-conjugated anti-miR, which targets microRNA-122, for the treatment of
patients with chronic HCV. We filed our first application for RG-101 with
regulatory authorities in the Netherlands and recently received approval to
commence a Phase I clinical trial. Additionally, we nominated RG-012, an
anti-miR targeting miR-21 for the treatment of Alport Syndrome, an orphan,
life-threatening kidney disease driven by genetic mutations, as our second
microRNA candidate for clinical development. We are responsible for advancing
RG-012 to proof-of-concept and Sanofi will have the

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exclusive option, exercisable after proof-of-concept, to take over further
development and commercialization of RG-012 program. Lastly, our strong
financial position supported our 'Road to the Clinic' goals as we ended 2013
with $114.0 million in cash, cash equivalents and short-term investments.

In February 2014, we launched our 'Clinical Map Initiative', which outlines
certain corporate goals and objectives to advance our microRNA therapeutics
pipeline over the next several years. Specifically, we intend to demonstrate
human proof-of-concept results in the Phase I clinical study of RG-101 by the
end of 2014, initiate a Phase I clinical study of RG-012 for the treatment of
Alport Syndrome in the first half of 2015 and nominate a third microRNA
candidate for clinical development by the end of 2014. In order to achieve these
objectives, we intend to maintain a strong financial position and end 2014 with
at least $75.0 million in cash, cash equivalents and short-term investments.

On July 22, 2013, we completed a public offering whereby we sold 5,175,000
shares of common stock at $9.50 per share and received net proceeds of $45.8
million, after deducting underwriting discounts, commissions and other offering
expenses. On October 10, 2012, we completed our initial public offering whereby
we issued and sold 11,250,000 shares of common stock at a public offering price
of $4.00 per share, resulting in net proceeds to us of approximately $39.5
million. Concurrently with the completion of our initial public offering on
October 10, 2012, $5.0 million of outstanding principal plus accrued interest of
$0.8 million underlying a convertible note that we issued to GSK in April 2008
and amended and restated in July 2012, together with $5.0 million of outstanding
principal plus accrued interest of $25,000 underlying a convertible note that we
issued to Biogen Idec in August 2012, was automatically converted upon the
closing of our initial public offering into an aggregate of 2,703,269 shares of
our common stock. Upon the closing of our initial public offering, all shares of
our outstanding convertible preferred stock automatically converted into an
aggregate of 13,699,999 shares of common stock. On October 23, 2012, the
underwriters for our initial public offering partially exercised an
over-allotment option to purchase 1,480,982 shares of our common stock at $4.00
per share, resulting in net proceeds to us of approximately $5.5 million.

In February 2014, we and Sanofi entered into a second amended and restated
collaboration and license agreement to extend our strategic alliance. Under the
terms of our extended alliance, Sanofi will have opt-in rights to our miR-21
pre-clinical fibrosis program targeting miR-21for the treatment of Alport
Syndrome, our preclinical program targeting miR-21 for oncology indications, and
our preclinical programs targeting miR-221/222 for oncology indications, each of
which is to be led by us. If Sanofi chooses to exercise its option on any of
these programs, Sanofi will reimburse us for a significant portion of our
preclinical and clinical development costs and will also pay us an option
exercise fee for any such program, provided that $1.25 million of the $2.5
million upfront option fee paid to us by Sanofi in connection with the June 2013
option agreement will be creditable against such option exercise fee. In
addition, we will be eligible to receive clinical and regulatory milestone
payments under these programs and potentially commercial milestone payments. We
also continue to be eligible to receive royalties on microRNA therapeutic
products commercialized by Sanofi or will have the right to co-promote these
products. For additional information, see Notes 5 and 15 to our financial
statements under Item 8 of Part II of this Annual Report.

In connection with our entry into the second amended and restated collaboration
and license agreement with Sanofi, we sold and issued 1,303,780 shares of our
common stock to Aventis, an entity affiliated with Sanofi, in a private
placement at a price per share of $7.67 for an aggregate purchase price of $10.0
million.

Financial Operations Overview

Revenues

Our revenues generally consist of upfront payments for licenses or options to
obtain licenses in the future, research and development funding and milestone
payments under strategic alliance agreements.

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In the future, we may generate revenue from a combination of license fees and
other upfront payments, research and development payments, milestone payments,
product sales and royalties in connection with strategic alliances. We expect
that any revenue we generate will fluctuate from quarter-to-quarter as a result
of the timing of our achievement of preclinical, clinical, regulatory and
commercialization milestones, if at all, the timing and amount of payments
relating to such milestones and the extent to which any of our products are
approved and successfully commercialized by us or our strategic alliance
partners. If our strategic alliance partners do not elect or otherwise agree to
fund our development costs pursuant to our strategic alliance agreements, or we
or our strategic alliance partners fail to develop product candidates in a
timely manner or obtain regulatory approval for them, our ability to generate
future revenues, and our results of operations and financial position would be
adversely affected.

Research and development expenses

Research and development expenses consist of costs associated with our research
activities, including our drug discovery efforts, the preclinical development of
our therapeutic programs, and our microMarkersTM division. Our research and
development expenses include:

• external research and development expenses incurred under arrangements
with third parties, such as contract research organizations, or CROs,
contract manufacturing organizations, or CMOs, consultants and our
scientific advisory board;

• license fees; and

• facilities, depreciation and other allocated expenses, which include
direct and allocated expenses for rent and maintenance of facilities,
depreciation of leasehold improvements and equipment, and laboratory and
other supplies.

We expense research and development costs as incurred. We account for
nonrefundable advance payments for goods and services that will be used in
future research and development activities as expenses when the service has been
performed or when the goods have been received.

To date, we have conducted research on many different microRNAs with the goal of
understanding how they function and identifying those that might be targets for
therapeutic modulation. At any given time we are working on multiple targets,
primarily within our five therapeutic areas of focus. Our organization is
structured to allow the rapid deployment and shifting of resources to focus on
the best targets based on our ongoing research. As a result, in the early phase
of our development, our research and development costs are not tied to any
specific target. However, we are currently spending the vast majority of our
research and development resources on our lead development programs.

Since our inception in January 2009, we have grown from 15 research and
development personnel to 59 and have spent a total of approximately $96.8
million in research and development expenses through December 31, 2013.

We expect our research and development expenses to increase for the foreseeable
future as we advance our research programs toward the clinic and initiate
clinical trials. The process of conducting preclinical studies and clinical
trials necessary to obtain regulatory approval is costly and time consuming. We
or our strategic alliance partners may never succeed in achieving marketing
approval for any of our product candidates. The probability of success for each
product candidate may be affected by numerous factors, including preclinical
data, clinical data, competition, manufacturing capability and commercial
viability. Under our strategic alliance with GSK, we may be responsible for the
development of product candidates through clinical proof-of-concept, depending
on the time at which GSK may choose to exercise its option to obtain an
exclusive license to develop, manufacture and commercialize product candidates
on a program-by-program basis. Under our strategic alliance with Sanofi, we

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are responsible for the development of product candidates up through
proof-of-concept, after which time Sanofi would be responsible for the costs of
clinical development and commercialization and all related costs. Under our
strategic alliance agreement with AstraZeneca, we are responsible for certain
research and development activities with respect to each alliance target under a
mutually agreed upon research and development plan until the earlier to occur of
IND approval in a major market or the end of the research term under the
agreement. We also have several independent programs for which we are
responsible for all of the research and development costs, unless and until we
partner any of these programs in the future.

Most of our product development programs are at an early stage, and successful
development of future product candidates from these programs is highly uncertain
and may not result in approved products. Completion dates and completion costs
can vary significantly for each future product candidate and are difficult to
predict. We anticipate we will make determinations as to which programs to
pursue and how much funding to direct to each program on an ongoing basis in
response to our ability to maintain or enter into new strategic alliances with
respect to each program or potential product candidate, the scientific and
clinical success of each future product candidate, as well as ongoing
assessments as to each future product candidate's commercial potential. We will
need to raise additional capital and may seek additional strategic alliances in
the future in order to advance our various programs.

General and administrative expenses

General and administrative expenses consist primarily of salaries and related
benefits, including stock-based compensation, related to our executive, finance,
legal, business development and support functions. Other general and
administrative expenses include allocated facility-related costs not otherwise
included in research and development expenses, travel expenses and professional
fees for auditing, tax and legal services. We expect that general and
administrative expenses will increase in the future as we expand our operating
activities and incur additional costs associated with being a publicly-traded
company. These increases will likely include legal fees, accounting fees,
directors' and officers' liability insurance premiums and fees associated with
investor relations.

Other income (expense), net

Other income (expense) consists primarily of interest income and expense, and on
occasion income or expense of a non-recurring nature, including changes in debt
valuation each reporting period. We earn interest income from interest-bearing
accounts and money market funds for cash and cash equivalents and marketable
securities, such as interest-bearing bonds, for our short-term investments.
Interest expense has historically represented the amounts payable to under the
convertible notes payable and interest payable under equipment and tenant
improvement financing arrangements.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the revenues and expenses
incurred during the reported periods. We base our estimates on historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.

While our significant accounting policies are described in the notes to our
financial statements appearing elsewhere in this Annual Report, we believe that
the following critical accounting policies relating to revenue recognition and
stock-based compensation are most important to understanding and evaluating our
reported financial results.

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Revenue recognition

Our revenues generally consist of upfront payments for licenses or options to
obtain licenses in the future, research and development funding and milestone
payments under strategic alliance agreements, as well as funding received under
government grants. We recognize revenues when all four of the following criteria
are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the
products and/or services has occurred; (3) the selling price is fixed or
determinable; and (4) collectability is reasonably assured.

Multiple element arrangements, such as our strategic alliance agreements with
GSK, and Sanofi, are analyzed to determine whether the deliverables within the
agreement can be separated or whether they must be accounted for as a single
unit of accounting. Deliverables under the agreement will be accounted for as
separate units of accounting provided that (i) a delivered item has value to the
customer on a stand-alone basis; and (ii) if the agreement includes a general
right of return relative to the delivered item, delivery or performance of the
undelivered item is considered probable and substantially in the control of the
vendor. The allocation of consideration amongst the deliverables under the
agreement is derived using a "best estimate of selling price" if vendor specific
objective evidence and third-party evidence of fair value is not available. If
the delivered element does not have stand-alone value or if the fair value of
any of the undelivered elements cannot be determined, the arrangement is then
accounted for as a single unit of accounting, and we recognize the consideration
received under the arrangement as revenue on a straight-line basis over our
estimated period of performance, which for us is often the expected term of the
research and development plan.

Milestones

We recognize revenue from milestone payments when earned, provided that (i) the
milestone event is substantive in that it can only be achieved based in whole or
in part on either our performance or on the occurrence of a specific outcome
resulting from our performance and its achievability was not reasonably assured
at the inception of the agreement, (ii) we do not have ongoing performance
obligations related to the achievement of the milestone and (iii) it would
result in the receipt of additional payments. A milestone payment is considered
substantive if all of the following conditions are met: (i) the milestone
payment is non-refundable; (ii) achievement of the milestone was not reasonably
assured at the inception of the arrangement; (iii) substantive effort is
involved to achieve the milestone; and (iv) the amount of the milestone payments
appears reasonable in relation to the effort expended, the other milestones in
the arrangement and the related risk associated with the achievement of the
milestone. Any amounts received under the agreements in advance of performance,
if deemed substantive, are recorded as deferred revenue and recognized as
revenue as we complete our performance obligations. The adoption of this
guidance did not materially change our previous method for recognizing milestone
payments.

Generally, the milestone events contained in our strategic alliance agreements
coincide with the progression of our product candidates from target selection,
to clinical candidate selection, to clinical trial, to regulatory approval and
then to commercialization. The process of successfully discovering a new
development candidate, having it approved and ultimately sold for a profit is
highly uncertain. As such, the milestone payments we may earn from our partners
involve a significant degree of risk to achieve. Therefore, as a product
candidate progresses through the stages of its life-cycle, the value of the
product candidate generally increases.

Fair Value Option

Accounting standards for fair value measurements establishes a three-level
hierarchy for disclosure of financial instruments measured at fair value. The
classification of assets and liabilities within the hierarchy is based on
whether the inputs to the measurement valuation methodology are observable or
unobservable. Observable inputs reflect market-derived or market-based
information obtained from independent sources, while unobservable inputs reflect
our estimates about market data. The following three-level fair value hierarchy
is based on the transparency of the inputs used to measure the fair value of the
financial instruments:

• Level 1 includes financial instruments for which quoted market prices for
identical instruments are available in active markets.

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• Level 2 includes financial instruments for which there are inputs other
than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly.

• Level 3 includes financial instruments for which fair value is derived
from valuation techniques in which one or more significant inputs are
unobservable in determining fair values of the instruments.

Applicable accounting policies permit entities to choose, at specified election
dates, to measure specified items at fair value if the decision about the
election is: 1) applied instrument by instrument, 2) irrevocable, and 3) applied
to an entire instrument. In July 2012, we amended and restated the 2010 GSK
note, which resulted in a debt extinguishment for accounting purposes.
Concurrently with the debt extinguishment, we elected the fair value option for
the 2010 GSK note. We performed valuations at the extinguishment date and
subsequently on a quarterly basis with changes in fair value recorded in
non-operating earnings. This instrument has been classified in Level 3 within
the fair value hierarchy.

Our valuation technique uses an income approach in the form of a convertible
bond valuation model to value the note. The convertible bond model considers the
debt and option characteristics of the note. The key inputs to the model are
volatility, risk-free rate and credit spread. The absolute stock and strike
price are not key inputs because upon an initial public offering, the conversion
option was assumed to be set at-the-money. The estimated fair value of the note
was based on the probability weighted average of an initial public offering and
a non-initial public offering scenario for the initial valuation in July 2012
and subsequent valuation in September 2012. The For valuations subsequent to our
initial public offering, the valuation did not consider a probability weighting,
as the initial public offering was completed in October 2012. The volatility
inputs are based on historical and implied volatility of peer companies. Peer
companies are materially consistent with those used previously in our 409A
analyses. The risk-free rate inputs are based on the yield of US Treasury Strips
as of each date. The credit spread inputs are based on a creditworthiness
analysis of the Company and market rates for comparable straight debt
instruments.

Our significant accounting policies and estimates are more fully described in
Note 1 to the Financial Statements.

Recent Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, refer to the
section titled "Recently Issued Accounting Pronouncements" within "The Business,
Basis of Presentation and Summary of Significant Accounting Policies" of our
Financial Statements.

Results of Operations

Comparison of the years ended December 31, 2013 and 2012

The following table summarizes the results of our operations for the periods
indicated (in thousands):

Our revenues are generated from ongoing strategic alliance and collaborations,
and generally consist of upfront payments for licenses or options to obtain
licenses in the future, research and development funding and milestone payments.
The following table summarizes our total revenues for the periods indicated (in
thousands):

Revenue under strategic alliances was $19.6 million for the year ended
December 31, 2013 compared to $12.7 million for the year ended December 31,
2012.

In June 2013, the research term expired under the Sanofi alliance, at which time
we entered into an option agreement pursuant to which Sanofi was granted an
exclusive right to negotiate the co-development and commercialization of certain
of our unencumbered microRNA programs, and we were granted the exclusive right
to negotiate with Sanofi for co-development and commercialization of certain
miR-21 anti-miRs in oncology and Alport Syndrome. In July 2013, we received an
upfront payment of $2.5 million, of which $1.25 million is creditable against
future amounts payable by Sanofi to us under our second amended and restated
collaboration and license agreement with Sanofi. The non-creditable portion of
. . .